Bogaty, vice president–senior analyst on Moody’s Higher Education and Not-of-Profit Team, was referring to the four main drivers of Moody’s negative outlook for the higher education industry over the next 12 to 18 months:

1) Slowly growing revenue eclipsed by pressures to increase expenses

2) Heightened competition, including changing delivery and business models

3) Flat to declining governmental funding and apportionment

4) Political scrutiny and increased regulatory oversight

“We’re not seeing any light at the end of the tunnel for tuition revenue growth,” said Bogaty, pointing out that families’ declining ability to pay for college is depressing the ability of colleges to raise tuition, even as the colleges experience increased expenses and a need to invest in facilities.

“There will need to be some fundamental changes in the cost structure of colleges” to deal with expenses, said Bogaty, but they are “tough decisions that the industry is not ready to make.” It has become more obvious that expense management and “a quest for cost efficiency” is essential for achieving long-term sustainability, but “we’re not there yet.”

Meanwhile, flat numbers of high school graduates is leading to more competition. That, combined with declining yield rates and increasing tuition discounts, means “predictability is a real issue. The greater the gap created by yield and discount trend lines is, the harder it is to build your budget,” noted Bogaty.

Changing business models are also increasing competition, with influencers being portability, technology, credentialing, competency-based learning, and partnering. “Greater flexibility is beneficial for students, but it adds complexity to the landscape,” said Bogaty.

And with heightened political scrutiny and regulatory activity—with the government focused on accountability and affordability; outcomes as well as access—when the public reads about these issues in the media, it’s “negative press.” Bogaty said. “We don’t see this going away.”

On the plus side, Bogaty pointed out that these negative drivers are mitigated somewhat by the industry’s proven adaptability to weak economic conditions, the high fundamental demand for higher education, and stronger earnings by educational attainment.